Download The Demand Schedule

[ 3.1 ] Fundamentals of Demand
[ 3.1 ] Fundamentals of Demand
Learning Objectives
• Understand how the law of demand explains
the effects of price on quantity demanded.
• Describe how the substitution effect and the
income effect influence decisions.
• Explore a demand schedule for an individual
and a market.
• Interpret a demand graph using demand
schedules.
[ 3.1 ] Fundamentals of Demand
Key Terms
• Demand
• law of demand
• substitution effect
• income effect
• demand schedule
• market demand schedule
• demand curve
Demand
Anyone who has ever
shopped knows the
difference between wanting
to have something and being
able to pay for it. Sometimes
you can buy what you want,
and sometimes the price is
just too high.
Demand
These people may have a desire to purchase the goods they see
in the store window, but without the ability to pay for them, they
do not generate true demand.
Demand
The law of demand explains consumer reaction to
price increases and decreases.
Demand
When price changes, the substitution and income effects influence
demand in different ways. In what circumstance do the income and
substitution effects lead to the same result?
Quiz: Demand
If James and his friends experience the
substitution effect, they will respond to a
rise in the price of their favorite post-game
snack by
A. working extra hours to make more
money.
B. buying less of their favorite snack.
C. buying more of their favorite snack.
D. choosing another snack food instead
of their favorite snack.
The Demand Schedule
The law of demand, along with
concepts such as the substitution
effect and income effect, explains
how the price of any item affects the
quantity demanded of that item.
Before we look at the relationship
between price and the quantity
demanded for a specific good, we
need to look more closely at how
economists use the word demand.
The Demand Schedule
Both individual and market demand schedules record how
changing prices affect quantity demanded.
Quiz: The Demand Schedule
The owner of a sandwich shop surveyed
her customers on how often they came in,
which sandwiches they preferred, and
what quantity of sandwiches they ordered.
She then added up the quantities
demanded by all her consumers at each
price. What did she create?
A.
B.
C.
D.
demand for sandwiches
a market demand schedule
the substitution effect
an individual demand schedule
The Demand Graph
What if you took the numbers
in Ashley’s demand schedule
in Figure 3.1 and plotted them
on a graph? The result would
be a demand graph, or
curve. A demand curve is a
graphic representation of a
demand schedule.
The Demand Graph
At this livestock auction, the law of demand is on clear
display: As the price goes up, the number of willing buyers
goes down, until finally there is only one bidder left.
The Demand Graph
These graphs use the data from the individual and market
demand schedules to show demand graphically.
Quiz: The Demand Graph
The difference between a market demand
curve and an individual demand curve is
that the market demand curve
A. provides data about only one
consumer.
B. is curved and not straight.
C. provides data about many consumers.
D. is usually much shorter than an
individual demand curve.